Lender Letter LL-2017-05 - Fannie Mae

Lender Letter LL-2017-05

To: All Fannie Mae Single-Family Sellers High Loan-to-Value Refinance Option

September 08, 2017

At the direction of the Federal Housing Finance Agency (FHFA), Fannie Mae will offer a new high loan-to-value (LTV) refinance option designed for Fannie Mae borrowers who are making their mortgage payments on time, but whose LTV ratios exceed the maximum allowed for standard limited cash-out refinance transactions in the Selling Guide. This option will not be available for a number of months, but we are sharing the details with lenders now to allow time for any needed operational and system updates. The Selling Guide will be updated with these requirements next year, closer to the time when lenders can begin originating these high LTV refinances.

Extension of DU Refi PlusTM and Refi PlusTM

FHFA recently announced the extension of the Home Affordable Refinance Program (HARP). As a result, we are extending the expiration date of DU Refi Plus and Refi Plus. Lenders may continue to originate loans with application dates up to and including December 31, 2018. All whole loans must be purchased by us on or before September 30, 2019, or included in MBS pools with issue dates on or before September 1, 2019.

High LTV Refinance Requirements

The following tables describe all of the requirements of the existing loan being refinanced and the new loan that will be originated under the high LTV refinance option.

Requirements for the Existing Loan Being Refinanced

Eligible Existing Loans

The loan must be a first-lien, conventional mortgage loan, owned or securitized by

Fannie Mae.

The loan must have a note date on or after October 1, 2017.

Loans that are part of a risk-sharing structure (for example, credit risk transfers) are

eligible to be refinanced.

Servicer

The current servicer or a new servicer may refinance the existing loan.

PreviouslyModified Mortgages

Borrowers who have applied for or received a modification are eligible provided

the borrower benefit provision is met using the prevailing payment, and the payment history requirement is met.

Seasoning

At least 15 months have passed from the note date of the existing loan to the note date of the new loan. (For example, if the note date on the existing loan is January 1, 2018, the note date on the new loan can be no earlier than April 1, 2019.)

? 2017 Fannie Mae. Trademarks of Fannie Mae.

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Ineligible Existing Loans

The following loans are ineligible to be refinanced:

existing DU Refi PlusTM or Refi PlusTM loans; loans that are subject to outstanding repurchase demands; or loans that are subject to recourse, repurchase agreement, indemnification, or another

negotiated credit enhancement required at origination for eligibility purposes are not eligible, unless

? the new loan is also subject to a credit enhancement that meets eligibility requirements, or

? such credit enhancement is not required for eligibility purposes on the new loan.

Requirements for the New Loan

New Loan Requirements

The new loan must have an application date on or after November 1, 2018. A new executed Uniform Residential Loan Application (Form 1003/1003(S)) is

required from the borrower(s) with all information completed, including borrower income, employment, and assets.

The new loan must be either:

? a fixed-rate loan (existing loan may be fixed-rate or ARM); or

? an ARM that refinances an existing ARM, with the new ARM having a minimum five-year fixed rate term.

The term of the new loan may not exceed 30 years. The new loan must meet current general or high-balance loan limits, as applicable, at

the time of loan delivery.

The new loan cannot be originated pursuant to Section 50(a)(6) of Article XVI of the

Texas Constitution.

Temporary interest rate buydowns are not allowed. The new loan amount is limited to

? the payoff of the unpaid principal balance (UPB) of the existing first mortgage loan being refinanced (including accrued interest);

? the financing of closing costs, prepaid items, and points (up to $5,000 total) for the new loan; and

? cash back to the borrower up to $250. (Excess proceeds may be applied as a curtailment on the new loan.)

Lenders may provide an incentive to the borrower in the form of a payment to pay off

a portion of the existing loan being refinanced.

? Any such reduction of the existing loan balance will impact the LTV ratio as it is applied to the calculation of the new loan amount. (Lenders should be careful in that incentives have the potential to reduce the LTV ratio to below the minimum allowable for this program.)

? 2017 Fannie Mae. Trademarks of Fannie Mae.

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Minimum LTV Ratio

Lenders are not required to evaluate borrower creditworthiness except for the

requirements specifically stated in this Lender Letter.

For the new loan to be eligible, the following minimum LTV ratios are currently required for both fixed-rate and adjustable-rate mortgage (ARM) loans:

Occupancy Type

Units Minimum LTV

Principal Residence

1

95.01%

2

85.01%

3-4 75.01%

Second Home

1

90.01%

Investment Property

1-4 75.01%

Maximum LTV Ratio

Underwriting Methods

Benefit to Borrower

N O T E : The loan being refinanced and the new loan do not have to represent the same occupancy. The occupancy of the subject property may have changed by the time of the high LTV refinance transaction.

No maximum LTV, CLTV, or HCLTV ratios for fixed-rate loans. 105% maximum LTV ratio for ARM loans, but no maximum CLTV or HCLTV ratio.

Except for the Alternative Qualification Path, which requires manual underwriting, high

LTV refinance loans may be underwritten using Desktop Underwriter? (DU?) or manually.

DU will determine if the borrower(s) and subject property address on the loan casefile

match an existing eligible Fannie Mae loan.

For manually underwritten loans the lender must determine that all eligibility requirements

are met.

The new loan must provide a benefit to the borrower in the form of at least one of the following:

a lower principal and interest (P&I) payment; a lower interest rate; shorter amortization term; or movement to a more stable product (for example, from an ARM or a step-rate

modification to a fixed-rate loan).

? 2017 Fannie Mae. Trademarks of Fannie Mae.

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Borrower Eligibility

Generally, the borrower(s) on the loan being refinanced (or the current borrower(s) if

the existing loan was assumed) must be identical to the borrower(s) on the new loan. However, an existing borrower may be excluded from the new loan for either of the following:

? the remaining borrower(s) meets the mortgage payment history requirements and provides evidence that they have been making the payments on the existing loan from their own funds for the most recent 12 months prior to the application of the new loan, or

? due to the death of a borrower. Evidence of the deceased borrower's death must be documented in the loan file.

If this criteria cannot be met, the new loan must be underwritten in accordance with the Alternative Qualification Path (see below).

Borrower(s) may not be added to the new loan.

If the loan being refinanced was assumed by the current borrower(s) prior to the

refinance of the new loan, the current borrowers must have been qualified for the existing loan per the Servicing Guide.

Eligible Subordinate Financing

New subordinate financing is only permitted if it replaces existing subordinate

financing.

Existing subordinate financing

? may not be satisfied with the proceeds of the new loan,

? can remain in place as long as it is resubordinated to the new loan, and

? may be simultaneously refinanced as long as the new subordinate lien loan amount does not exceed the existing UPB.

Other standard subordinate financing requirements will not apply.

N O T E : Although standard Fannie Mae policy prohibits subordinate financing on co-op share loans, an exception is permitted for high LTV refinance loans as long as the existing subordinate lien is subordinate to the new co-op share loan.

Underwriting and Documentation Requirements for the New Loan

Payment History Requirement

On the loan being refinanced, the borrower cannot have had

any 30-day mortgage delinquencies in the most recent six-month period, and no more than one 30-day delinquency in months 7 through 12.

Minimum Credit Score

There is not a minimum credit score requirement except for loans underwritten under

the Alternative Qualification Path.

A new credit report is required in accordance with standard Selling Guide

requirements for payment history and pricing purposes.

Maximum Debt-toIncome Ratio

There is not a maximum debt-to-income ratio except for loans underwritten under the

Alternative Qualification Path.

? 2017 Fannie Mae. Trademarks of Fannie Mae.

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Significant Derogatory Credit Events

Employment and Income Verification

Lenders are not required to comply with the waiting period and re-establishment of

credit requirements for significant derogatory credit events or the payoff or satisfaction of a judgment identified on the credit report.

Lenders are not required to review or consider Form 1003 (or 1003(S)) VIII,

Declarations (a through f) in the underwriting evaluation.

The lender must obtain one of the following:

? a verbal verification of employment for employment or self-employment income for at least one borrower,

? documentation of a non-employment income source, or

? documentation of liquid financial reserves equal to 12 months of the new monthly housing payment.

Lenders are not required to assess continuity of income. Lenders are not required to verify income amount or calculate the debt-to-income ratio

except for loans underwritten under the Alternative Qualification Path.

Asset Verification Multiple Financed Properties Property Listing Requirements

Valuation

Assets do not need to be verified except for loans underwritten under the Alternative Qualification Path where applicable.

There are no limits on the number of financed properties the borrower may own.

The lender does not need to confirm the subject property is not listed for sale.

Collateral Requirements for the New Loan

For certain loan casefiles, DU will offer a property inspection waiver (PIW) ? an option

to waive the appraisal requirement. Otherwise, an appraisal with an interior and exterior inspection will be required. If an appraisal is obtained, it must be used for valuation even if a waiver is offered by DU. Lenders exercising the PIW must deliver Special Feature Code 807. ? When the lender is required by law to obtain an appraisal, the lender must comply with such

requirements, but may still exercise the PIW.

For manually underwritten loans, an appraisal with an interior and exterior inspection

will be required.

Property Type

All Fannie Mae-eligible property types are permitted.

Condo, Co-op, and PUD Projects

The project must not be a condo or co-op hotel or motel, houseboat project, or a

timeshare or segmented ownership project. The lender is not required to perform any additional review of the project.

Confirmation of property, flood, and liability insurance coverage is required.

? 2017 Fannie Mae. Trademarks of Fannie Mae.

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Properties Affected by a Disaster

Repairs to a property damaged as the result of a disaster (as defined by the Selling Guide) will not be required prior to delivery as long as the loan meets the applicable property insurance requirements. An additional inspection and/or new appraisal of the property is not necessary after a disaster.

Leasehold Estates Eligibility

The term of the leasehold must run for at least five years beyond the maturity date of the mortgage, unless fee simple title will vest at an earlier date in the borrower. The lender is not required to perform any additional review of the leasehold terms.

Alternative Qualification Path for the New Loan

Potential Material Change in Credit Risk or HigherPriced Mortgage Loans

If any of the following apply to the new loan, the loan must conform to the Alternative Qualification Path requirements described below:

the P&I payment increases by more than 20% based on the current P&I payment;

a borrower on the loan being refinanced is being excluded from the new loan other

than due to death, and the remaining borrower(s) cannot evidence making payments on their own for the prior 12 months; or

the loan is a higher-priced mortgage loan or a higher-priced covered transaction under

Regulation Z.

N O T E : Lenders must manually determine whether the loan being refinanced is a higherpriced loan or a higher-priced covered transaction under Regulation Z because DU cannot do so.

Eligibility and Underwriting Criteria

Unless otherwise stated, all of the requirements in this Lender Letter apply to loans originated in accordance with the Alternative Qualification Path. In addition, these loans must have:

a minimum credit score of 620, a maximum debt-to-income ratio of 45%, and verified assets needed to close, when applicable.

See the Attachment for income and asset documentation requirements.

Underwriting Method

Manual underwriting is required.

? 2017 Fannie Mae. Trademarks of Fannie Mae.

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Mortgage Insurance Coverage Requirements

Mortgage Insurance

If the loan being refinanced does not have mortgage insurance, mortgage

insurance will not be required on the new loan.

If the loan being refinanced has existing mortgage insurance, the existing mortgage

insurance coverage must be continued on the new loan. To accomplish this, the mortgage insurer will modify the existing mortgage insurance certificate and transfer it to the new loan. Such transfer may or may not include assignment of a new mortgage insurance certificate number. Lenders should check with the mortgage insurer for specific requirements.

Financed Mortgage Insurance

Life Of Coverage

Cost to Transfer Certificate

Existing loans with financed mortgage insurance are eligible for high LTV refinance loans. There should be no difference in how coverage is continued on the refinance of such loans versus existing loans that do not have financed mortgage insurance. The existing coverage can be continued on the new loan regardless of whether the financed premium on the existing loan was paid as a single premium or a split premium. Lenders should check with the mortgage insurer for specific requirements.

For high LTV refinance loans, mortgage insurance coverage must extend for the life of the new loan, or until cancellation or termination of coverage as required by law or Fannie Mae guidelines. For example, even if a 15-year loan that is 3 years old is refinanced into a 30-year loan, the mortgage insurance coverage should be extended for the full life of the new loan.

A mortgage insurance company may charge a reasonable fee to transfer the certificate, and Fannie Mae permits such cost to be rolled into the unpaid principal balance of the new loan as a closing cost as long as the loan will still comply with Fannie Mae's and the mortgage insurance company's guidelines.

Loan Delivery Requirements

Loan Delivery Application

If the high LTV refinance loan was underwritten under the standard guidelines

described above, the lender must provide the following data in the Loan Delivery application:

? HighLTVRefi as the enumeration for RefinanceProgramIdentifier when importing a loan delivery XML file, or

? High LTV Refi as the Refi Program ID when manually entering loan data in Loan Delivery.

If the high LTV refinance loan was underwritten using the Alternative Qualification

Path, the lender must provide the following:

? HighLTVRefi as the enumeration for RefinanceProgramIdentifier and 840 as the value for InvestorFeatureIdentifier when importing a loan delivery XML file, or

? High LTV Refi as the Refi Program ID and Special Feature Code 840 when manually entering loan data in Loan Delivery.

? 2017 Fannie Mae. Trademarks of Fannie Mae.

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N O TE: The new HighLTVRefi enumeration will be added to Loan Delivery and additional guidance will be provided in the coming months.

MBS Pool Prefixes

MBS deliveries of loans refinanced under this new option will be eligible for securitization utilizing existing Fannie Mae pool prefixes.

Pooling Loans with LTV Ratios Above 105%

High LTV refinance loans with LTV ratios above 105% cannot be included in TBA-eligible MBS but must be included in pools specifically created for loans with LTV ratios above 105%.

Furthermore, lenders may be able to deliver high LTV refinance loans with LTV ratios above 105% into the respective Fannie Majors pool specifically available for these loans. Due to the separate pool prefixes required for loans with LTV ratios above 105%, these loans may not be delivered into standard TBA-eligible Fannie Majors pools.

Whole Loan Committing of Loans with LTV Ratios Above 105%

Separate committing will be required for high LTV refinance loans with LTV ratios above 105% -- loans may not be delivered against standard whole loan commitments. Specific "High LTV Refi" products will be available in Fannie Mae's whole loan committing application.

Solicitation

Practices

Lenders may not solicit Fannie Mae loans for refinancing except in accordance with standard requirements per the Selling Guide B2-1.2-04, Prohibited Refinancing Practices.

Pricing

Pricing

Fannie Mae will publish an updated Loan-Level Price Adjustment Matrix at a future date.

? 2017 Fannie Mae. Trademarks of Fannie Mae.

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